Kitsap Real Estate Market Report - December 2007
Presidential Primary Election results have eclipsed real estate and mortgage lending problems in the current news cycle, though there has been no shortage of worrisome real estate news. National unemployment just rose to 5%. Inflation is up as commodity prices are on the rise. The Fed would prefer not to cut interest rates much further, as has been advocated to fend off the huge losses from mortgage defaults and subprime losses. Single family home starts are at their lowest levels since 1991. Overall mortgage delinquencies are at the highest rate since 1986. Builder confidence in the market for single family homes is at the lowest reading since 1985.
Not being a perfectly competitive market, housing prices tend to be strongly persistent - sellers are reluctant to lower their prices. If you’ve been gaging the market by how prices have changed, things may not look too bad - but you should not be misled. If we focus on inventory levels, we can predict that prices must decline. Currently Kitsap County has an inventory turnover rate of about 10 months. In rough terms a neutral inventory is about 6 months supply of homes, so we argue that there is a very substantial possibility that prices will fall to allow the inventory to be reduced. Shown below are graphs of inventory and inventory turnover for Kitsap County in 2007. Note that the year end inventory normally falls about 15% as sellers take their homes off the market for the holidays. We expect much of this inventory to come back on the market in the coming months.
There are a couple metrics we might try out on the Kitsap market. If the relationship between median family income and median prices is 2.8 in a normal market, in our mid December Outlook we calculated that it is about 4.3 in Kitsap County. Prices tend to fall slowly, so it might take a couple years to get back within the normal range of income to median home price.
Another metric says that annual gross equivalent rent less the cost of utilities should be about 5% of a home’s value. This came from a study by Morris Davis , an economist at the University of Wisconsin-Madison and formerly at the Fed. The study tracked the percentage of annual gross rent less utilities divided by average price and interpolated year over year using the CPI equivalent rent component. The data show that nationally this ratio has fallen to about 3.5%, meaning that home prices have risen much more quickly than the equivalent rent that the homeowner might receive. We could not duplicate the data for Kitsap County but have been able to verify that the trend since 2000 appears to be correct (see graph below).
Residential Highlights
Kitsap County residential inventory in December (1920 listings) was down 12.5% from November. Inventory was 19% higher than a year ago. The number of year to date pending sales was down 14% compared to a year ago - compared to minus 13% last month. Pending sales for the month of December were down 20% compared to December 2006. Countering the downward trend, Poulsbo YTD pending sales are up 31% compared to a year ago. Of 45 current pending sales in Poulsbo, 40 are new construction, and most of these are presales that never appeared as active listings. Bainbridge Island year to date pending sales are down 4% from a year ago (a reversal over the past several months after being up for most of the year). The number of YTD closed sales Countywide (see graph below) is minus 18% compared to a year ago - down from minus 17% last month. Poulsbo YTD closed sales are up 13% from a year ago, up from 11% last month. Bainbridge Island closed sales were down 5% from a year ago.
Prices are falling…
Prices have gone down. The YTD median sales price of $290,343 in December was down just over a percent from November (see graph below). This is up 6% from a year ago. The median for closed sales in December was $265,500 - about the same as last month and down about 1% from closed sales in December 2006. It’s vitally important for sellers to be the most competitively priced among their competition if they want to generate an offer.
Seller expectations…
The median list price for the year remained steady at $350,000. This is the same as last month and is less than 1% higher than a year ago. The inventory turnover (total homes on the market divided by number sold last month) is 9.9 months, down from 10.1 months in November. This number has been steadily going up for the past several months. A year ago this number was 6 months, and that was already reflecting a market slowdown from its 2005 levels. Today a seller has a 10% chance of selling his/her home in a given month. Competitive pricing is essential, and almost every offer we see presented is negotiating on price.
The statistics for pending sales (compared to year-to-date sales last year) varied for different parts of the County. Most areas have slipped some in the past month. Here is a snapshot (see graph below for comparison):
Bainbridge Island -4% (-3% last month)
Poulsbo +31% (+32% last month) - 40 of 45 pending are new construction
Bremerton -23% (-24% last month)
Kingston -11% (-10% last month)
Silverdale +2% (+2% last month)
Port Orchard -8% (-6% last month)
Olalla -25% (-25% last month)
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